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Venezuelan president Hugo Chavez died last week after a lengthy fight with cancer. Reactions to his passing have run from despair in the poor sections of Caracas to jubilation in the ex-pat Venezuelan communities in Miami.
Regardless of your opinion of the man or his politics, as investors we always have to be mindful of political change and the potential implications on the markets and assets.
Venezuela is a major player in the global energy market since it holds the world’s largest proven oil reserves, even more than Saudi Arabia. According to the Energy Information Administration’s most recent figures, Venezuela is the world’s eighth-largest oil exporter. And it is the United States’ fourth-largest supplier of imported crude oil and petroleum products, despite the often heated rhetoric aimed at Washington.
While Venezuela’s vice president has already declared he is running for president in a special April 14 election, these types of regime changes can often get messy. Keep in mind that in the last election Chavez’s victory was heavily contested. Yet as seen by the outpouring of support at his funeral, Chavez and his socialist policies are hugely popular in Venezuela.
Therefore, I fully expect that at minimum there will be turmoil as the various political parties vie for power. In the past, that turmoil has affected most government-run industries not only in Venezuela, but other countries as well, and there is a high likelihood that the same thing will happen again.
So, the question is …
Who Would Benefit from
Political Turmoil in Venezuela?
I say Brazil. And here’s why …
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| Brazil’s recent offshore discoveries could make it a major oil exporter. |
Brazil is the largest oil producer in South America, and is in the process of ramping up production and oil exports as there have been some very large discoveries there in recent years. Consequently, it is the logical alternative for oil importing countries, given Venezuela’s uncertainty.
In particular, Brazil will look to boost demand from China. That’s because China has substantially increased its oil imports from Venezuela over the years. As of last year it was 460,000 barrels per day and was on track to import over 1 million barrels per day by 2015, according to Venezuelan oil officials.
That’s a big increase. And you can bet that the Brazilian energy authorities are courting the Chinese in a big way, given the potential uncertainty in their northern neighbor.
One way to play this favorable trend in Brazil is via the iShares MSCI Brazil (EWZ), a position I have in the Million-Dollar Contrarian Portfolio. This ETF holds stocks in companies — including the state controlled oil company, Petrobras — that represent Brazil’s major industries. So if Brazil’s oil sector benefits from political turmoil in Venezuela, EWZ should rally.
Best,
Tom
Tom Essaye oversees Weiss Group’s Million-Dollar Contrarian Portfolio, in which company founder Martin D. Weiss has staked $1 million of his own money.
Tom began his financial-services career at Merrill Lynch, where he worked on trading desks on the floor of the New York Stock Exchange. While on the floor, he managed multi-million dollar equity trades from some of the biggest hedge- and mutual-fund firms.
